The People’s Bank of China said that from Monday it will double the trading band, so that the yuan can fluctuate by 1pc every day from a mid-point, compared with its previous limit of 0.5pc. The move demonstrates Beijing’s belief that the yuan is now stable enough to handle major structural reforms, despite slowing growth of the Chinese economy.
Analysts said the slowdown may have actually spurred Beijing to make the change, because the Chinese government knew it could introduce the larger band without causing a spike in the yuan’s value.
“The central bank chose a good time window to enlarge the trading band. The market’s expectation for a stronger yuan is weakening,” said Dong Xian’an, chief economist at Peking First Advisory in Beijing.
Nonetheless, The People’s Bank of China took the unusual step of issuing its announcement in English rather than Mandarin. Sources said China wanted to deflect criticism of its currency policy ahead of the International Monetary Fund’s annual spring meeting in Washington next week.
According to data released by the National Bureau of Statistics on Friday, China’s economy grew at its slowest rate in nearly three years in the first quarter of 2012.
The country’s annual rate of GDP growth slowed to 8.1pc from 8.9pc in the previous three months, marking the fifth consecutive quarter of slowing growth in China.
The figures chimed with investor fears that the slide in China’s growth has yet to bottom out and that interventionist measures are required to halt it.
China’s economic growth is seen as one of the engines for global recovery, so any decline or slowdown is seen as a warning flag for other financial markets.
China’s economy expanded by 9.2pc in 2011, its lowest rate for two years, and its disappointing start to 2012 has revived concerns about the strength of the US economic recovery.
“In general, I think the first-quarter export results have disappointed the consensus. We still believe there should be more policy relaxation to add to growth domestically and offset weakness in exports,” said Kevin Lai, an economist at Daiwa in Hong Kong.